Dollar falls to a three year low

The US dollar fell to a three year low against major currencies yesterday (Jan. 28), as Hans Blix the UN chief weapons inspector, and Mohamed ElBaradei, the chief of the International Atomic Energy Agency, briefed the UN Security Council about the findings of two months of inspections in Iraq for weapons of mass destruction.

The US dollar fell to a three year low against major currencies yesterday (Jan. 28), as Hans Blix the UN chief weapons inspector, and Mohamed ElBaradei, the chief of the International Atomic Energy Agency, briefed the UN Security Council about the findings of two months of inspections in Iraq for weapons of mass destruction.

The Euro, which hit parity with the US dollar in July 2002, rose to a three year high yesterday of US $1.0907. After its launch on January 1, 1999, the euro fell below the US $1 mark early 2000, and hit a record low of 82.30 in the fall of 2000.

The weakness of the US dollar will help US manufacturers and exporters compete better as US products become more affordable because of the difference in currency values. However, travelling abroad for Americans will be more expensive because of a weak dollar.

Johnny Abedrabbo, a senior economist at National Commercial Bank, Saudi Arabia’s largest bank says, “I foresee it in 2003 to either stay below parity or go a little further down, unless fundamentals change in the US. The economy still seems very fragile and the recovery hasn’t taken hold yet.”

While talk of a possible conflict in Iraq has caused regional stock markets to gyrate and the price of oil to fluctuate, the impact, according to George Soros, also known as the ‘The Man Who Broke the Pound, on the world economy could far worse.

Speaking at the World Economic Forum in Davos, Switzerland, the Hungarian born financier told the audience the slide in the value of the dollar amid talk of possible military action, “is a sign of weakness rather than a potential strength.”

“It means other countries still have to keep selling to the United States because that is where the market is. They will just have to sell at lower prices, so it will have a negative effect on the rest of the world. It will be a relief for US companies but not for the global economy,” Soros Said.

For countries in the Middle East, the picture is mixed. Most Arab currencies are pegged to the US dollar and a cheaper dollar is better in terms of exports. “For oil producing countries, where oil exports are in US dollars, this could have implications for their balance of payments with other countries, but not with Japan, as the Yen is not appreciating,” says Abedrabbo. “But with respect to the European Union that could make things a little more expensive for them,” he added.